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For some years, the pretty resort towns along the wooded lakes of north-west Michigan might have rivalled the Hamptons for glorious waterfront compounds and wealthy summer residents. It was a favourite location for executives retiring out of the motor city of Detroit, a few hours’ drive away. They would compete with buyers from Chicago for the best waterfront spots. Even Al Capone is rumoured to have owned a string of properties in the area.

Fast forward to 2008, when the US automotive industry collapsed. In the months that followed, the bottom fell out of Lake Michigan’s holiday-home market. Properties went unsold, developments stalled and there was a spike in bank foreclosures. Eight years later, the market is still feeling the impact.

“I don’t know if we will ever get back to 2003 and 2004,” says Pat O’Brien, owner of Pat O’Brien and Associates Real Estate, based in Charlevoix, a popular resort town sandwiched between Lake Charlevoix and Lake Michigan.

House values have picked up since their nadir in 2012. The average home in Charlevoix has increased 26 per cent since then, according to O’Brien, and while buyers could expect an 18 per cent discount on the asking price in 2012, this year the average discount is closer to 5 per cent.

David Johnson, chairman of developers Victor International, says the growth has been driven by new waterfront properties. For older homes, especially those that are off the water, sales are still sluggish and in some areas are still 50 per cent below their peak. “That market has not recovered,” he says.

These older properties with higher price tags can sit on the market for more than a year. A five-bedroom house on the lake with a rolling lawn and private dock, originally priced at almost $2m, has been for sale for more than 18 months and is now priced at $995,000.

Harbor Sotheby’s International Realty is selling a six-bedroom house built in 1958 for $3.93m. The house has a Tolkienesque undulating roof, a densely planted garden and a private jetty on Round Lake. A similar place in the Hamptons would cost at least twice as much.

And while $1m won’t get you a tool shed in the Hamptons, in Charlevoix it will buy a three-bedroom waterside house with a hot tub, on 3.6 acres.

With the falling demand, resort towns such as Charlevoix and nearby Petoskey have had to diversify. Instead of attracting retirees from the Detroit and Chicago areas, they have had to appeal to younger, more active buyers from Texas and the south-west.

The strategy is working, says Walter Kidd, co-owner of Kidd & Leavy Real Estate, based in Petoskey. “People used to come here to sit on the end of the dock,” he says. “Today they are mountain biking, kayaking, hiking.”

Alistair Hirst, a South African, and his wife, who live in southern Michigan, investigated Hilton Head Island, the popular resort in South Carolina, before buying in Bay Harbor Village, a residential community developed by Victor International. In July they paid $875,000 for a fully furnished condo penthouse with lake views. Hirst and his family intend to use it in the off-season, instead of hunkering down for the winter. There are several ski and winter sports resorts in the area.

“We’re going to get out of hibernating in the winter,” Hirst says.

Six-bedroom house, built in 1958, on Round Lake, $3.93m

In 2015, Steve Alexandrowski, who owns a financial planning company, paid $1.26m for a 2,900 sq ft home on Walloon Lake, which had been on the market for three years. The house needed work, he says. There was a lot of what he calls “deferred maintenance”. But Alexandrowski, who lives outside Detroit with his wife and two children, says that he was determined to make the purchase a success. He has been spending summers in north-west Michigan throughout his life. “My parents always had a place [here],” he says.

Families often hold on to homes in the area for generations, which is one reason why many of the best properties rarely come on to the market. “We don’t have enough listings out there,” says Gary Deters, owner of RE/MAX Resort Properties in Boyne City, at the east end of Lake Charlevoix.

The limited supply of properties has encouraged many buyers who cannot find the right house to buy land and build. Land prices are still about 50 per cent below the market high, says Deters. His company is advertising a prime one-acre waterfront plot for $549,000.

Wright Building and Design, a custom home builder based in Boyne City, is booked for the next eight months, says its co-owner, Todd Wright. Most of his clients spend a total of between $1m and $1.5m on their homes, with construction costs typically ranging from $225 to $350 per sq ft, Wright says.

While the market is more diverse than in the past, sales are still tied to the fortunes of America’s heartland companies. And with the automotive industry rebounding in recent years, there is some optimism about the future.

“If Detroit is doing well, we’re doing well,” Wright says.

Buying guide

Charlevoix receives an average 120in of snowfall in the winter; there are several ski areas in northern Michigan

Distinctive stone houses in Charlevoix designed by the architect Earl Young are known as “the mushroom homes”

Annual property tax on a $1m house in the area is about $11,000

Agents’ fees typically total 5 to 6 per cent of the purchase price, paid by the seller